Italy moves toward economic and political change

Italy’s Jus­tice Min­is­ter Nitto Palma, left, and Finance Min­is­ter Giulio Tremonti sit dur­ing a vot­ing ses­sion on eco­nomic reform mea­sures demanded by the Euro­pean Union, that should pave the way for Pre­mier Sil­vio Berlus­coni to leave office in a mat­ter of days, at the Sen­ate in Rome, Fri­day, Nov. 11, 2011. The prospect of a tran­si­tional gov­ern­ment headed by respected non-partisan econ­o­mist Mario Monti calmed mar­kets for a sec­ond day, with Italy’s 10-year bor­row­ing rate down a fur­ther 0.21 per­cent­age point to 6.59 per­cent. Shares were buoy­ant too, with the Milan stock index was up 1.7 per­cent in early trad­ing at 15,477. (AP Photo/Pier Paolo Cito)

COLLEEN BARRY, NICOLE WINFIELD

Asso­ci­ated Press

ROME (AP) — Under pres­sure to con­trol its dan­ger­ous debt, Italy sped a pack­age of reforms toward approval Fri­day and pre­pared to hand its dys­func­tional gov­ern­ment over to a tech­no­crat who Europe hopes can save the coun­try from going broke. Finan­cial mar­kets around the world ral­lied in relief.

In its own step toward sta­bil­ity, Greece, which pre­ceded Italy as the epi­cen­ter of the Euro­pean debt cri­sis, installed a new prime min­is­ter. The Dow Jones indus­trial aver­age in New York rose 2 per­cent, and mar­kets in Britain, France and Ger­many posted sim­i­lar gains.

A set of aus­ter­ity mea­sures cleared the Ital­ian Sen­ate by a vote of 156–12. The lower cham­ber of Par­lia­ment will vote Sat­ur­day, and Prime Min­is­ter Sil­vio Berlus­coni has said he will step down once the reforms are passed.

In a sign of con­fi­dence from investors, Italy’s bor­row­ing costs fell sharply. The yield on bench­mark Ital­ian 10-year bonds fell to 6.48 per­cent, safely below the cri­sis level of 7 per­cent reached ear­lier this week.

Greece, Ire­land and Por­tu­gal all required inter­na­tional bailouts after their own bor­row­ing rates passed 7 per­cent. The Ital­ian econ­omy would not be so easy to save. It totals $2 tril­lion, twice as much as the other three coun­tries combined.

An Ital­ian default could tear apart the coali­tion of 17 coun­tries that use the euro as a com­mon cur­rency and deal a strong blow to the economies of Europe and the United States, both try­ing to avoid recessions.

The Sen­ate cham­ber resounded with warm applause for Mario Monti, the dis­tin­guished econ­o­mist expected to suc­ceed Berlus­coni. He was unex­pect­edly named senator-for-life this week, putting him in line to lead.

“Our warmest and most cor­dial wel­come,” Sen­ate Pres­i­dent Renato Schi­fani told Monti after pro­claim­ing him senator-for-life, an hon­orific reserved for the hand­ful of Ital­ians who have most con­tributed to Ital­ian society.

A Cab­i­net meet­ing has been sched­uled imme­di­ately after the vote in the lower house Sat­ur­day, sug­gest­ing Berlus­coni might ten­der his res­ig­na­tion then.

The aus­ter­ity mea­sures will be not enough to revive the dor­mant Ital­ian econ­omy. They raise the retire­ment age to 67, but not until 2026. They call for the sale of state prop­erty and pri­va­tiz­ing some ser­vices but con­tain no painful labor reforms.

The reforms also offer tax incen­tives to com­pa­nies that hire young work­ers in a coun­try where the unem­ploy­ment rate for peo­ple ages 15 to 24 hov­ers around 25 per­cent. Unem­ploy­ment over­all is closer to 8 percent.

“There is more to be done,” said Her­man Von Rompuy, pres­i­dent of the Euro­pean Coun­cil, which sets the polit­i­cal course for the Euro­pean Union. “The coun­try needs reforms, not elections.”

He added that Europe expects Italy to pass the reforms, at least as a first step.

In Greece, Prime Min­is­ter Lucas Papademos, a for­mer vice pres­i­dent of the Euro­pean Cen­tral Bank, assumed con­trol of a tem­po­rary coali­tion gov­ern­ment that will try to push through tough eco­nomic reforms and keep Greece from defaulting.

The Papademos gov­ern­ment must pass a euro130 bil­lion, or $177 bil­lion, bailout from the Euro­pean Union. That was the deal that Padademos’ pre­de­ces­sor, George Papan­dreou, said he would put up for a vote. He later backed off and resigned.

Papademos will lead a gov­ern­ment with min­is­ters from three par­ties. The bit­ter rivalry of con­ser­v­a­tives and Papandreou’s Social­ists is being set aside as Greece tries to get its finan­cial act together.

Von Rompuy held pre­vi­ously sched­uled talks with Berlus­coni on Fri­day night, though no state­ment was released after­ward. He also called on Pres­i­dent Gior­gio Napoli­tano, a sign of the EU’s keen inter­est in the next steps of Italy’s transition.

The hope is that polit­i­cally neu­tral gov­ern­ments will have the strength to push through deeply unpop­u­lar and painful eco­nomic reforms needed to reduce the two coun­tries’ mas­sive debt.

Italy has about euro1.9 tril­lion, or $2.6 tril­lion, in debt, and must roll over more than euro300 bil­lion of its debts next year alone. But eco­nomic growth is weak, and with­out a strong econ­omy, debt ser­vice can con­sume more and more of the budget.

The mar­kets have clearly favored a Monti gov­ern­ment, and many politi­cians have appeared to sup­port it as well. Ele­ments of Berlusconi’s nearly defunct gov­ern­ment argue for early elec­tions, but oth­ers have thrown their sup­port behind Monti, as have many in the oppo­si­tion. The North­ern League, whose sup­port to Berlus­coni has been key over his two decades in pub­lic life, remained opposed but seemed almost resigned by Fri­day after­noon to the real­ity of a broad-based Monti government.

Monti has won kudos from across Italy’s polit­i­cal spec­trum and abroad because he has defied being affil­i­ated with the right or the left, said Thomas Klau of the Euro­pean Coun­cil of For­eign Relations.

“The first thing he can bring to Italy at this junc­ture is his deep under­stand­ing of both the eco­nomic dynam­ics and polit­i­cal dynam­ics in Europe,” he said. “His intel­lec­tual lead­er­ship and author­ity are rec­og­nized across Europe” — a con­trast to Berlus­coni, he said.

Posted by AP News on Nov 11 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.